The great house price mystery

HOUSE prices are the topic that have come to dominate dinner party debates across Britain during the past five years.

But unless you lived in Scotland or Northern Ireland the post meal chat last year was more likely to be doom and gloom than glee at soaring equity.

Widespread opinion has been that after years of double digit growth across the UK, house price inflation slowed down dramatically in 2005 and some areas saw slight falls.

The property market avoided a crash and there is unanimous agreement that it had a 'soft landing', but try and find out exactly how much your house's value rose or fell and you could end up scratching your head.

Industry experts are currently putting out their figures for the change in house prices in 2005, and there are a baffling number of different outlooks, which could add £10,000 to your house's value or knock £4,000 off.

So where do the figures come from and who can you trust?

Surprisingly, the most pessimistic outlook on house prices in 2005 came from information supplied by estate agents. Property research specialist Hometrack said average house prices fell by 1.6% during the year, based on its poll of 7,500 estate agents across Britain.

At first glance, it seems strange that an industry known for its bullish outlook would say house prices dropped when others put 2005 increases at between 3 and 5%. But Hometrack claims it gets a more realistic picture of the property market by polling estate agents and asking them whether prices are rising or falling?

It says this gives a more accurate reading than using data from sales, offers or mortgages, which Hometrack claims favour areas where the property market is buoyant and houses are selling in larger volumes.

This means Hometrack tends to produce one of the more downbeat house price opinions, especially at a time when the market is slower and estate agents are suffering.

Distinct from Hometrack's poll-based study, are two of the most established house price indexes from the Nationwide Building Society and Halifax.

These are both based on serious number crunching with statistics wizards working out average house prices from the companies' mortgage lending. Nationwide said house price growth was 3% in 2005, while Halifax pegged average house prices rises at 5% last year.

The difference of a couple of percentage points may not seem like much, but transfer that to the average UK house price of around £200,000 and it represents a £4,000 difference.

So why the discrepancy? Are Halifax customers paying £4,000 more for their houses than their peers are at the Nationwide?

Different ways the pair calculates their indexes may be behind the difference, but another theory is regional variations.

Although it is now one of Britain's biggest banks, Halifax started off life as a northern building society and its correct modern name is HBOS, following the merger with Bank of Scotland.

This means Halifax, the UK's largest mortgage lender, has an especially strong pull in the North and Scotland, where house price inflation is outperforming other areas of Britain, perhaps a reason why its price rises exceed the Nationwide's.

With the vital importance of bricks and mortar to the UK's economy the Government also produces its own house price inflation figures.

The Office of the Deputy Prime Minister's index is based on completed mortgage figures, but lags behind other studies. So, the latest Government statistics, which gave a year-on-year rise of 2.2%, only ran until the end of October, and an index for the whole of 2005 is not likely to appear until early February.

Despite its tardiness the advantage of the ODPM report is its comprehensive nature. It lists regional variations such as Scotland's 9.1% rise and gives information on types of purchase, such as the worrying trend in first-time buyer prices, which rose more than double the average at 5%.

With many more conflicting views around in the dark art of house price studies than there are revealed above, the best way to pick your way through the minefield is to gather as much information as possible, at This is Money's house prices channel, and opt for the middle ground.

You could align that information with your own indicator, such as noting down the asking prices of a selection of similar properties to yours' from the local paper and comparing them every few months.

Then when the post meal chat turns to house prices, even if your home isn't making those spectacular gains of previous years, you'll still be the talk of the dinner party thanks to your own personal study.

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